EUR/USD
The recovery off 1.4102 is showing signs of fatigue on the approach to key resistance at 1.4360/85. This resistance area protects both the June 22 reaction high at 1.4442, and the projected resistance line of a bear pennant continuation pattern at 1.4413. A push below 1.4250 would attract fresh EUR bear pressure back to the intraday higher low at 1.4168.
GBP/USD
The downside target at 1.5901 is still within striking distance, despite Monday's corrective rally. There is scope for more downside as GBP bears target the downwave equality target at 1.5859 as a minimum objective, and concerted weakness would pave the way for 1.5752 and 1.5675. Regaining ground above 1.6011 would provide temporary respite, but corrective upside risk is limited to 1.6094.
USD/JPY
The focus remains on the June 15 reaction high at 81.08, as USD bulls regain control of the short term. The probe above 80.80 keeps the 13-day uptrend line intact, and a break above 81.08 would pave the way for the 1.618 Fibonacci extension target at 81.40. Significant resistance lies at 81.48. Support at 80.60 has become pivotal for the short term, but only a sustained break below 80.48 would concern USD bulls.
AUD/USD
A decisive push below 1.0441 is underway, which exposes a support cluster between 1.0325 and 1.0250. Two 1.618 Fibonacci extension targets lie just above former range highs at 1.0250, where this bear wave is likely to find a significant long-term base. Regaining ground above 1.0539 is required to lift the tone.
FOREX FOCUS
The path of true love is never smooth, as the yen is about to find out. For many months, the Japanese currency has worked its charms, wheedling its way into the heart of the international investment community even as Japan itself suffered from a devastating earthquake and tsunami. Through all the ups and downs, the market's affection remained strong with investors preferring the yen against many other major currencies in times of global uncertainty. Signs are, however, that this is all falling apart even though the Japanese economy itself is staging a much more robust recovery from the earthquake than expected. The shift in affections is evident in the yen's performance against the Swiss franc, that other great safe haven love that investors tend to turn to. In recent months, the franc has risen steadily against the yen, showing that the Japanese currency is steadily losing its ranking in the safe haven stakes. It all appears to be part of a larger shift in affections as the market adjusts to the latest concerns about the global recovery and inflationary pressures. The timing for the yen might be ironic, given that new retail sales indicate that consumption has rebounded sharply and should soon return to pre-earthquake levels once supply constraints have eased. Industrial production figures and the latest Bank of Japan Tankan survey this week will also contribute to the view that the worst for the Japanese economy is over. However, this good news on the recovery isn't expected to translate into higher rate expectations, given the ongoing fiscal and political problems facing Japan. The currency strategy team at Commerzbank put it this way: "The yen cannot expect any support on the interest front, as the central bank cannot afford a vicious circle of rising interest rates leading to the increased probability of defaults and thus higher interest rates. As a result it will keep interest rates low and eventually that will have an effect on the yen."
EUROPE
Greece continued to hold currency markets in thrall in European trade Tuesday, as overnight buying interest in the euro faded, while the pound sagged as weak economic data rubbished the case for higher interest rates. With Greece on a 48-hour general strike, ahead of Wednesday's parliamentary vote on the strict budgetary measures upon which a crucial bailout depends, the single currency gave back some of its overnight gains as attention switched to the eleventh-hour struggle to stave off a Greek default. The euro was pretty much stuck in the $1.42s against the dollar while making some headway against the beleaguered pound for reasons more to do with the sombre outlook for the U.K. economy. The Swiss franc, the star turn of the past few weeks, continued to have another good outing. Over in Greece, embattled Prime Minister George Papandreou wants lawmakers to approve plans to cut spending by EUR28.6 billion by 2015. At the same time, Greek central bank governor Giorgos Provopoulos has waded into the debate, saying that taxpayers are at their limits. The battle lines are drawn but You-Na Park, strategist at Commerzbank, said she expects Papandreou to win through. "It will pass through. Doesn't look like there is any other way and that may spark a relief rally for the euro," she said, but added that any gains aren't likely to be big. After all the medium-term outlook for Greece won't be resolved and the amount of private sector participation is still undecided.
ASIA
The euro held steady against the dollar and the yen in Asia Tuesday as growing optimism that Greece will approve a package of austerity measures Wednesday prodded traders to refrain from making fresh bets. Earlier in the day, short covering that triggered stop-loss purchases above 1.4300 sent the single currency as high as $1.4330. But the gains were eroded later due to the absence of fresh news related to the Greek debt crisis. Positive news regarding Greece overnight and a rebound in the stock market are making it tough to sell the euro against the dollar," said Kuniyuki Hirai, manager at the foreign exchange trading department of Bank of Tokyo-Mitsubishi UFJ. European governments said Monday they want private creditors to roll over as much as EUR30 billion of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Traders in Tokyo said that with the situation turning for the better, all eyes are now on Wednesday's parliamentary vote on a EUR28 billion package of austerity measures in Greece.
WORLD
Investors' optimism about the prospect of a broad plan with European Union guarantees to roll over Greek debt that could involve private creditors and diminish the chance of default helped boost the euro Monday in New York. European governments have said they want private creditors to roll over as much as EUR30 billion worth of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Hopes that an austerity plan could pass in the Greek Parliament later this week also gave the currency support. "There is optimism on Greece" at the start of this new week, said Kathy Lien, director of currency research at GFT Forex in New York. There is a broad sense that most parties in the euro zone, and inside Greece itself, know what is at stake and won't let Greece fail. "Euro bears were covering today on optimism that [the likely passage of the austerity plan] is going to be positive for the euro," said Phil Streible, senior market strategist at Lind-Waldock in Chicago. The thinking now is that the euro could next head to $1.4300-$1.4325, he predicted. But the euro will then be susceptible as that good news wanes and more troubles present themselves, said Streible. To that end, "I was selling $1.48 August calls today and putting in orders for $1.40 September puts," for the euro, he said.
